CAN INVOICE FINANCE BE OF BENEFIT TO YOUR BUSINESS?
by David Napier
What is Invoice Finance?
Invoice Finance (IF) in its simplest form is a borrowing limit against your debtors.
Given the current plight of the Financial Markets, IF has become more prevalent and is seen to be a replacement/alternative to a bank overdraft. Moreover, the “unpopular” overdraft facility appears to be going out of fashion, being called-in, cancelled or consolidated to loan as Banks repair their balance sheets under Government pressure.
An IF will typically lend an upfront percentage against your outstanding invoices. The benefit to your business is that you will receive your invoice payment within a week rather than wait 90 days notwithstanding your terms quoting strictly 30 days from the date of invoice.
Which type of businesses can benefit?
Sole traders to PLC’s can benefit from IF. Any business which creates clean debts and any business selling on credit terms to trade customers.
Isn’t this Factoring?
Yes, Factoring is one of many products available to the IF.
Why is it only failing companies Factor?
This is a popular misconception and could not be further from the truth. Factoring has struggled to shake off a stigma of the late eighties early nineties recession. The IF will undertake all the normal due diligence procedures to ensure the viability of the company requesting the IF facility and this will naturally include the important aspect of the quality of the debtors (the recourse for the IF).
Factoring with Invoice Discounting has become a very useful short and long term cash-flow tool for companies of all sizes and is viewed as a very pro-active lending product. Most companies will Invoice Finance at some point and probably all will have had their own invoices “factored” by a creditor.
What’s the difference between Factoring and Invoice Discounting?
In essence a full Factoring facility will allow the IF to undertake all your credit control. An Invoice Discount facility will allow you to continue to chase your invoices as your business sees fit. The quicker your invoices are settled the less cost to you in interest charges from the IF. Some businesses prefer to Factor as they deem this to be cheaper than employing an individual to undertake credit control duties.
Why should I consider Invoice Finance?
With Overdraft facilities becoming harder to access, IF is a short term cash-flow must. We all know “cash is king”. It’s the lifeblood of the business. Without it the business fails. An unsecured Bank overdraft limit will provide working capital but it is restricted to perhaps a quarter of your outstanding invoices at anyone time whereas an IF will provide up to 85% of your outstanding invoices within a week; cleared funds in your Bank account. That’s up to three times more than an unsecured overdraft. Contracts can generally range from one month to two years.
My thoughts are, if you want your company to stay ahead of the game and meet your business aspirations then IF could provide the answer.
David Napier
Napier Business Consultants
m: 07835 404167
e: david (at) napierbusinessconsultants.co.uk
w: www.napierbusinessconsultants.co.uk/